Quantifying CDO Litigation Risk For The Less-Than-Godly Banks

Tyler Durden's picture

Now that the attention of the investment community has once again turned to regulatory risk, analysts will be focusing on the question of who may be most at risk for comparable CDO-related overtures by the SEC. The table below presents CDO league tables for top CDO underwriters in the 2006 and 2007 period. By and far Merrill Lynch and Citi appear to be most at risk (from Credit Suisse).

In a separate report Credit Suisse confirmed that based on deals with "salient" characteristics to Abacus, the firm once again sees Merrill/BofA as the most likely to suffer the wrath of the SEC. Reports Bloomberg:

Bank of America Corp. and Merrill Lynch & Co. led Credit Suisse AG’s “CDO litigation risk” list after offering $16.85 billion of collateralized debt obligations similar to the one that drew a U.S. fraud suit against Goldman Sachs Group Inc.

The tally of lead underwriters of CDOs with “salient characteristics” of the disputed deal between 2005 and 2008 may help investors gauge the risk that lawsuits will spread to other firms, Credit Suisse said in a report yesterday. Bank of America, the largest U.S. bank, acquired New York-based Merrill Lynch in January 2009.

“Problems of this sort are rarely confined to one institution,” Credit Suisse said. “The dot-com era shows us that in the wake of a crisis, business practices which were considered normal at the time can look very much worse with the benefit of hindsight and in a legal setting.”

Of course, Bank of America's CEO Brian Moynahan immediately came out with information that he was unaware of any implications of his firm in any related SE C investigation, saying "he had “no knowledge” of claims such as the ones
leveled against Goldman Sachs by U.S. regulators about a 2007
CDO offering."

The other two firms that fill out the top three list for the 2005-2008 period with "comparable deals" are UBS AG which ranked second with $15.8 billion, and JPMorgan Chase & Co. was third with $9.9 billion, primarily due to its purchase of Bear which despite being one of the biggest underwriters of CDO, passed on the Paulson proposed deal structure citing "ethical concerns", as we reported yesterday.

Below is a detailed list of selected historical SEC settlements with various banks, again via Credit Suisse.


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Bear's picture

The Righteous One - Bank of America. With a name like that how could they fall prey to such nefarious schemes. After all they are US.

sushi's picture

You have any dirty laundry?

Neither do I.

But lets suppose I know where you stashed your undies. And maybe you know where I hid mine. So do I go down and talk to someone, just to be on the safe side? Or do I wait until they come talk to me? What kind of risk am I running here? Just to be on the safe side don't you think I should pick up the phone and make a courtesy call? And maybe make that call before you do? Cause once you learn to swim with the sharks you just can't stop moving.

excellent's picture

Corporate law in the US makes doing business, private or public, as anything other than a freaking corporation just downright stupid.

Fraud-Esq's picture

Until the SEC takes action on the AIG payouts to GS on the TCW deals, this hasn't even really started. Moreover, until the SEC brings to light the vertical integration of Wall Street with the originators and the harm done in the original NON-synthetic CDO's, the story isn't being told....a multiple industry racket. Investment banks absorbed other industries whole to keep it going. Allowing Wall Street to interface with America's middle and lower class was the general origin of the problem. We need emails and cold calls to the originators from Wall Street to tell the story from the start.

Ned Zeppelin's picture

Welcome to our side. Right on, brother, right on.

Jake3463's picture

Well you may throw your rock and hide your hand
Workin' in the dark against your fellow man
But as sure as God made black and white
What's done in the dark will be brought to the light